Monetary policy has nationalized Japanese stock market, CLSA analyst says

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By Leslie Shaffer
CNBC, New York
Monday, August 22, 2016

Even a resurgent yen hasn't dampened Japan's stock rally over the past couple months, but that's not necessarily because investors like the market.

The Nikkei 225 index has surged around 10 percent since late June, even as the yen has climbed against the dollar, with the pair testing levels under 100.

Normally this would be bad news for stocks as a stronger yen is a negative for exporters as it reduces their overseas profits when converted to local currency. So what explains the buoyant stock market?

Analysts attributed the gains to the Bank of Japan, not fundamentals.

In a report titled, "BoJ Nationalizing the Stock Market," Nicholas Smith, an analyst at CLSA, said that the central bank's exchange-traded fund buying program was distorting the market.

At its late July meeting, the BoJ said it would increase its ETF purchases so that their amount outstanding will rise at an annual pace of 6 trillion yen ($56.7 billion), from 3.3 trillion yen previously.

Those purchases were particularly distorting to the market because they focused largely on funds tracking the Nikkei 225 index, Smith said in a note dated Sunday, estimating that more than half of the BoJ's ETF buying was likely in Nikkei-tied funds. ...

... For the remainder of the report:

http://www.cnbc.com/2016/08/22/monetary-polic...zed-the-japa...